Dollar will rise if safer assets draw investors
June 28 (Reuters) -Crude oil has shot higher by $10/bbl this month, challenging expectations for interest rate cuts, and potentially undermining extremely elevated stock markets. Should this fuel risk aversion, the dollar will rise as investors are drawn to safer assets.
This year stocks have soared regardless of a number of risk averse situations that would otherwise have sent them lower, and have partly done so because investors expect central banks to ease interest rates.
This month's climb in oil prices may delay U.S. easing and raise the bar for other central banks that have already cut rates to cut them further.
Brent crude is currently breaking over the top of the daily Ichimoku cloud. Oil rose $11/bbl to last year's high at $97.69/bbl following a similar break. The rise in oil prices that has mainly been fuelled by geopolitical factors is gaining the backing of technicals. It could go far.
If central banks are forced to maintain high interest rates, or perhaps even raise them, the dollar is the go-to purchase as it protects investors from any risk averse situations, and it is supported by the highest interest rate for a major nation.
Investors who opt to play safe are actually investing in carry trade -usually risky - and are paid well to do so.
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Brent crude oil https://tmsnrt.rs/4eJmS1u
(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
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